After World War I, the great powers decided on reparations to punish an aggressor for its carnage. After World War II, the great powers turned instead to reconciliation, creating the Bretton Woods Agreement to entice aggressors into good statecraft to gain access to a rules-based global financial order. Now, the great powers are reasserting themselves with a new kind of reparations: sanctions and even expropriations. We shall see if aggressors are dissuaded from still worse, but the post-1945 global-financial-policy construct is doomed. Given the vital importance of stable finance, it’s not too soon to think about what must come next to prevent 2022’s reparations from ending as disastrously as a century ago.
In 1919, the U.S. was forced to abandon much of the global decision-making consensus it sought as other powers balked. In 1945, the catastrophe partly caused by 1919’s reparations against Germany led the Allies, then including the Soviet Union, to craft a consensus-based, global financial order resting on a neutral reserve asset — gold — that all believed would ensure the balance of power stayed balanced. After 1971, the U.S. abandoned the gold standard and gained increasing clout as the dollar replaced gold as the world’s go-to reserve currency. The result was a long-lasting, if often uneasy, financial order empowering the increasingly globalized, financialized system that has come to advantage the U.S. at the growing cost of wealth inequality.
